Professional Administration – A new ethical low
Although always suspected, I learned for a fact this week that a new custodial company, whose main value proposition is lower on-going management fees, is planning to supplement their income stream by taking rebates from their managed care provider on the pharmacy portion of the MSA.
Here is how it works in theory. The MSA is established and approved using AWP (per CMS mandate). The claimant is put into a PBM program where they are billed the AWP rate for their medications (despite AWP not being the real cost to the PBM). The PBM takes the excess money charged to the claimant, deducts their margin and then rebates the excess back to the custodial company.
The first part, allowing a PBM to profit from their contractual discount with suppliers is perfectly acceptable. They have every right to earn a living for their efforts and it is a win/win scenario. The claimant gets a lower price for prescriptions than they would otherwise be able obtain on their own and the PBM profits from their large buying power with suppliers. That is managed care 101.
The second part, overcharging the claimant post settlement so a rebate can be paid to the custodian is the problem. And it is a huge problem. A medical custodian is a fiduciary for the claimant. That means in layman’s terms that the custodian is duty bound to put the claimant’s interest ahead of their own.
Forcing a claimant into a PBM contract, where the price paid is higher than necessary, is a serious breach of that fiduciary duty. It is especially severe when the rebate is not disclosed to the beneficiary giving them the opportunity to opt-out of such a one sided arrangement. Even if disclosed, the average claimant that is the beneficiary of an MSA does not have the experience or sophistication to understand the consequences of this arrangement. I would hazard a guess that the Payers have no idea what is going on either.
Most claimants that utilize professional administration are severely disabled and actually need their MSA funds to last as long as possible before turning to Medicare. The professional custodian is their advocate because once the money runs out; they have to turn to Medicare for payment. As most of us know, Medicare is not particularly generous with prescription coverage costing some beneficiaries as much as $4,000 or more out of pocket per year. So by overcharging the claimant for prescriptions, the money runs out quicker and the claimant is exposed to co-pays and the infamous donut hole sooner than if they were able to get the PBM rate direct.
This company and their managed care partner are trying to profit on the backs of the elderly, disabled and incompetent. I can’t think of a more disgusting business model.
Furthermore, I believe it is in direct violation of CMS’ mandate to not take professional administration fees from the corpus of the MSA. Taking funds in excess of their true cost on the back-end is no different than taking the money directly from the MSA. And just because CMS allows for AWP pricing, doesn’t make the practice ok. It just makes it transparent to the parties to the custodial agreement.
I guarantee that the first plaintiff attorney or state regulator that gets wind of this practice will sue everyone involved, including the Payer that thought the case settled. Look no further than the lawsuit in Louisiana against Coventry to get a taste of what can happen when you play fast and loose with medical billing and rebates (different issue and facts but same general principle).
MEDVAL, as I believe is the case with all reputable custodians that have been in the business more than six months, never takes a rebate from a medical provider or PBM and passes all negotiated discounts directly to the patient. To do so would be a serious breach of our ethical duty to the Payer, beneficiary and the attorney’s involved. This practice is just flat out wrong and might just be illegal in many states.
I am not going to name the offending parties in question, at least not today, mainly because it is not clear whether they have begun this practice due to a low volume of initial referrals. But you know who you are and if this becomes your business model, expect that you will be called upon to justify the practice under the bright light of industry and regulatory scrutiny.